City Hall turns attention to pension bond election

With focus still on Harvey recovery, mayor pushes fix for pension fund

Representatives from the police and municipal employee pension boards joined city officials for the announcement of a tentative pension reform deal, but they did not comment on theplan. The fire pension board did not attend. ( Steve Gonzales / Houston Chronicle ) less

Representatives from the police and municipal employee pension boards joined city officials for the announcement of a tentative pension reform deal, but they did not comment on theplan. The fire pension board ... more

Houston mayor Sylvester Turner speaks with members of the Houston Police Department pension system following the announcement of an agreement between the city and all three employee pension systems to reform the city's pension system during a press conference at City Hall, Monday, Oct. 24, 2016, in Houston. less

Houston mayor Sylvester Turner speaks with members of the Houston Police Department pension system following the announcement of an agreement between the city and all three employee pension systems to reform ... more

Photo: Houston Chronicle

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Houston mayor Sylvester Turner's relationship with the city's unions is being given credit for the pension deal he announced on Monday.

Houston mayor Sylvester Turner's relationship with the city's unions is being given credit for the pension deal he announced on Monday.

Photo: Mark Mulligan, Staff

City Hall turns attention to pension bond election

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With debris from Hurricane Harvey still on thousands of Houstonians' lawns, voters could be forgiven for forgetting that polls open in two weeks on a $1 billion pension bond referendum with decades-long implications for the city's financial health.

Mayor Sylvester Turner spent much of his first year and a half keeping the civic conversation focused on winning legislative approval of his plan to end Houston's spiraling pension crisis, and then, last May, achieved it.

Then came the historic hurricane. It may take a little time to get the public's attention back, but local leaders do not have much to spare.

"There are some competing issues and needs out there, but this is one time where we're going to have to do more than one thing at one time," Turner said. "This is one issue the city's been grappling with for the last 17 years and November is the people's opportunity to put a bow on this pension reform package and for us to turn the page and to really focus on our recovery efforts from Hurricane Harvey."

If the bonds fail, many of the hard-won benefit cuts in the reform bill would be rescinded.

The mayor acknowledged he is concerned at the short window he has to grab voters' attention - early voting starts Oct. 23 - but University of Houston political scientist Brandon Rottinghaus said local leaders may have just enough time to make their case.

"It's these kinds of issues where people could change their minds, or see the value of the bonds and vote accordingly," he said. "Partisan votes don't happen that way, but on a bond election where people know just a little bit of information, a little bit of communication can go a long way."

$8.2 billion debt

Houston's pension crisis began when leaders agreed to a series of dimly understood benefit increases between 1997 and 2001 that led the city's costs to spike. In response, the police and municipal pension funds agreed to cuts but also let the city pay what leaders thought it could afford rather than the amount needed to fully fund benefits each year. That helped create a debt of $8.2 billion.

Turner's reforms recalculate the city's payments to erase that debt over three decades, cut benefits by $2.8 billion and include a mechanism to cap Houston's future pension costs.

The $1 billion in bonds - $750 million to the police and $250 million to the municipal employees' plan - were used as an incentive to get those pension systems to agree to another round of cuts and will bolster both plans' funding levels.

The bonds also are intended to lower the city's annual costs because they likely will carry an interest rate of roughly 4.5 percent, lower than the 7 percent assumed rate of return that drives the amount the city must contribute to the plans.

Lawmakers added the referendum requirement, over Turner's objections, as a way of ensuring public input on the reform plan.

More Information

By the numbers

$1 billion

Amount in bonds up for a vote that will go toward boosting the police and municipal pension funds.

$2.8 billion

Reduction in pension benefits that would be rescinded if the bond package fails.

Oct. 23

Beginning of early voting.

"The public deciding that this is a pension solution that they'll support is a very important step for the overall process," said state Sen. Paul Bettencourt, R-Houston, who pushed for the referendum and supports the bonds. "Now, it's really up to the citizens of Houston of what decision they make, and it's an important one."

Houston is on the hook for its remaining multibillion-dollar pension debt regardless of whether it is paid off using the bonds or through higher annual contributions to its pension funds, but the consequences of the bond failing would be severe and swift.

If voters reject the proposal, the $1.1 billion in benefit cuts agreed to by the police pension fund would be rescinded; the municipal employees' fund would have the option of reversing the $770 million in benefit cuts to which it agreed.

Rescinding those cuts would add more than $150 million to the city budget in the fiscal year that starts next summer and would force city leaders to find an extra $23 million in the current budget.

Bettencourt said he supports the bonds because the reform bill will move the plans away from the traditional defined-benefit pension model if the funds' market returns falter.

Still, he acknowledged any bond of $1 billion is tough for some conservatives to accept, and said leaders still are holding hurricane recovery town halls, not political ones.

"There's no question that Harvey has reset the whole focus of the community, and rightly so because we've just had the greatest weather event of our lifetimes," he said. "This changes the focus."

GOP sitting out on issue

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A resolution the Harris County Republican Party considered late last month to endorse the pension bond failed on a voice vote. County GOP Chairman Paul Simpson, who supports the bonds, stressed that just means the party is sitting out the campaign rather than opposing the measure.

That was the argument GOP precinct chair Rolando Garcia made to his peers, garnering some applause at the meeting.

"Republican voters across the county are going to look at us and say, 'Why are you supporting a billion-dollar bond?' " he said. "Lots of powerful interests support this bond. They don't need the Harris County Republican Party supporting it."

Simpson said he is hopeful the groups supporting the bonds will be able to fully explain the issue.

"It's a complex problem, but it's not new debt, so that's why I think the Republican leadership thinks it's something we should do," Simpson said. "Pension bonds are a unique animal."

The Lift Up Houston campaign, which is advocating for the pension bonds and $495 million in city general improvement bonds that also will appear on the ballot, started knocking on doors in August, Turner said. However, he acknowledged the hurricane disrupted those efforts and several political fundraisers that had been planned to support them.

"The unfunded liability is $8.2 billion, is costing the city $1 million a day, and a 'yes' vote will reduce that unfunded liability by $3 billion. That is significant. And, let me add, without raising anybody's taxes," Turner said. "We're on the 10-yard-line, but we need to complete the work, and it won't be completed without a yes vote for the pension obligation bonds. That will complete the full package."

Rottinghaus said local leaders would be in error if they assume the bond election will glide to victory because most bond elections do or because both Democratic and Republican leaders support it.

"There are still sentiments from the grass roots that reject any big-government initiative, including one that is developed from a Republican legislature to save the city pension system," he said. "There's only so much directing that those leaders can do."

Melvin Hughes, president of the Houston Organization of Public Employees, the city's union of municipal workers, said he has encountered unease or confusion among everyday voters as union representatives have hosted town halls pushing for passage of the bonds.

"A lot of them just needed to know it's not new money, it's money that's owed to city employees," Hughes said. "They're not aware. All they see is that big number."

'Make good on our part'

That the mayor scrapped a proposed property tax rate hike he had floated to help fund the city's recovery from Harvey has also helped, Hughes said.

Turner also abandoned a plan to ask voters to rescind a 13-year-old cap on city property tax collections so as not to imperil the pension bonds.

Max Patterson, executive director of the Texas Association of Public Employee Retirement Systems, a Houston-based group that represents the city's three funds and more than 75 other local pension funds, said the bonds restore the city's deferred obligations to its pensioners.

"We saw police, firefighters and municipal employees react heroically to Houstonians in their time of need," Patterson said of the city's Harvey response. "We need to make good on our part of the deal we have with them, to shore up their pension funds with money owed them."